Raising Equity for large biomass to power projects

Transcription

1 Specialist investment. 16/09/2016 Raising Equity for large biomass to power projects Presentation to IrBEA 'Financing Bioenergy Projects' Workshop Dublin 14 th September 2016

2 Dedicated Renewable Focused Asset Manager Infrastructure in Clean Energy Proven technologies in Europe Electricity power stations not technologies Predictable long term cash flows Inflation linked revenue streams Wind, solar, biomass and small-scale hydro Strong growth through 2020 backed by targeted climate change legislation Euro focus: stable markets with transparent regulation 2 funds pursuing similar strategy Portfolio of more than 1.5bn Includes 120MWe of biomass (3 projects) Predictable financial return Absolute return Dividend yield Proven Investment Track Record Glennmont Clean Energy Fund Europe I closed at 437m Fully invested in 14 investments in 5 geographies across 3 technologies On track to deliver target range returns Section 1 Page 02

3 Specialist investment. Date 12/09/2012 Success in Biomass Project Development Within this section 1. General Success Factors 2. Fuel Supply Material and Market 3. Fuel Supply Contracting Strategy 4. Main Risks in Fuel Sourcing 01

4 General Success Factors Market size Macroeconomic stability Solid legal framework Subsidies (if any) based on sound regulatory policies Stable power market Robust project economics and a good fuel supply concept Section 1 Page 04

5 Fuel Supply Material and Market Favourable supply and demand balance (past, present and future) Significant headroom Watch out for substitutes (on both demand and supply sides) Sustainability Suitable technology available Transport and logistics Section 1 Page 05

6 Fuel Supply Contracting Strategy Aggregator with credit Multiple suppliers Section 1 Page 06

7 Main Risks in Fuel Sourcing Fuel availability risk Price risk Volume risk Specification Supplier credit Route to market: Single supplier with credit or various replaceable suppliers

8 Conclusion Fuel Supply is Key Biomass plant are unique for their fuel Fuel not a commodity Need to address volume and price risk Keep an eye on sustainability Availability of proven technology a must Section 1 Page 08

9 Specialist investment. Date 12/09/2012 Successful Project Delivery Within this section 1. Project Overview 2. Vendor and Purchaser Interests 3. Successful Project Delivery 4. Risk Allocation 02

10 Project Development A project has to go from here to here.

11 is laborious and complex Funding and Control Project Agreements Investor Lenders Operations Local Planning Authority Consents Capital, Governance Loan Agreement, Security Docs Management Contract Manager Landowner s Site, site access O&M Contract Operator EPC Contractor Sub- Contractors EPC Contract Subcontracts PPA Special Purpose Vehicle Marketing Ash Sale Agreement Certificates, Environmental Reporting Fuel Supply Contract Interconnection Agreement Fuel Supplier Grid Operator Guarantors, Bond Issuers Security Docs Utility / Trader Ash Offtaker Regulatory Bodies

12 Vendor and Purchaser Interests Argument over risk allocation Risk profile of asset Returns EPC contract biggest capex item (70-80%) Key driver for cash flow projection and valuation Swings in contract price can hit developer tenfold

13 Successful Project Delivery Long gestation period from site identification to realisation Regulatory windows of opportunity tight Projects evolve over time, but changes may be costly Development in clearly defined stages to deliver a defined project is key Consider needs of future stakeholders to accomplish this

14 Successful Project Delivery continued.. Tight definition of project a must Pay attention to risk allocation Make the project fundable (contracts but also site surveys, investigate fuel resource, etc.) Spend money on advisors (the right ones!) Select counterparties wisely Do not expect investors to fix the project s shortcomings

15 Risk Allocation - Fundamental Principles Every risk carries an unavoidable cost which must be allocated somewhere Allocate risk to parties who are best placed to evaluate and control the risk and bear the cost from the assumption of such risk Consider circumstances in each project they are never the same Well balanced risk allocation will result in higher economic value Section 1 Page 015

16 Materialisation of Risks Site investigation - Differing site conditions (extensions of time, extra cost) Utility connections Temporary loss of site access Technical specification Ambiguous criteria for acceptance of work (fit for purpose?) Weather

17 EPC Contracting EPC most common form of contract (one focal counterparty) Forms of contract Some more risky than others Identify possible risk allocation scenarios Develop contract on that basis Place emphasis on specification (is key to contract value) Clarity required at the outset to avoid price changes later

18 Risk Allocation in EPC Contracts Site risk Design risk Procurement risk Construction risk Force majeure risk Performance risk Other market / external risks, political RISKS Impact on Schedule Impact on Cost Score Probability Score Probability Construction - Ground Conditions Unforeseen ground conditions Medium Unlikely Medium Unlikely Soil survey underestimates quantity of materials needed Weak Negligible Weak Unlikely Over ordering due to soil survey overestimations Negligible Negligible Weak Negligible Third party services required where unexpected Weak Likely Weak Unlikely Construction - Environmental Unpredicted contamination Weak Unlikely High Likely Unexpected impact of environmental legislation Weak Negligible Weak Negligible Waste disposal Weak Unlikely Weak Likely Construction - Civil Works Price and quantity of material n/a n/a Weak Unlikely Price and quantity of labour n/a n/a Weak Unlikely Risk on price and availability of sub-contractors Weak Likely Medium Probable Site access Weak Unlikely Negligible Negligible Site communication Negligible Negligible Negligible Negligible Adverse weather High Likely Medium Probable Manufacturing, testing and commissioning of materials and plant Weak Unlikely Medium Unlikely Excavation cost overruns Weak Unlikely Weak Negligible Excavation safety Weak Negligible Negligible Negligible Force Majeure Physical damages Medium Likely Medium Negligible Earthquake High Negligible High Negligible Flooding High Negligible Medium Negligible Fire Medium Unlikely Medium Likely Weather Medium Likely Weak Likely Terrorism Medium Negligible High Negligible

19 Trajectory to Project Delivery Maintain trajectory to bankability Robust specification Guaranteed output Fixed price Fixed completion date Limits on Contractor s right to claim extensions of time Cash compensation for performance and delivery shortfalls (LD s) Security package (bonds and parent company guarantee) Adequate liability caps

20 Recommendations Identify investor-friendly location Tap a sustainable fuel resource, delivered under a de-risked supply strategy Shield the project contractually from exogenous risks Source a competitive EPC contract with a bankable risk allocation Think from the perspective of future owners and funders